JM Financial reports flat net as it consolidates ARC arm

Leading financial services player JM Financial today reported a Rs 118.60 crore consolidated net profit, up just 1.3 per cent over the year-ago period, in the December quarter, driven down by a poor show by its ARC business that had booked higher profit in year-ago period.
Excluding the ARC (asset reconstruction company) arm profit, which came in at Rs 8 crore against Rs 65 crore in the year-ago period due to the sale of Leela Goa assets, the other businesses did well, pushing revenue higher by 40 per cent, indicating that its flagship credit business has not faced any note-ban headwind.

Consolidated profit would have been higher by Rs 28 crore had it not been for the consolidation of its ARC balance-sheet into the holding firm during the quarter, JM Financial group chief financial officer Manish Sheth said.
"During the reporting quarter we consolidated our ARC business into JM Financial's book. This was following a marginal hike in our stake in it, thus making it a subsidiary.
"The December 2015 quarter was exceptionally good as we sold Leela Goa assets booking a profit of Rs 65 crore. This year there was no asset sales by the ARC arm which is a heavily cyclical business and therefore profit is only Rs 8 crore. Our profit excluding ARC business rose by Rs 28 crore," Sheth told PTI in a post-earnings concall.

He said during the quarter JM increased its holding in the ARC arm to 50.01 per cent, up from 50 per cent earlier, making it a subsidiary from October 1 as against an associate before that.

JM Financials' ARC arm is a joint venture between four public sector banks, including Indian Overseas Bank, Canara Bank, Vijaya Bank and a few private equity players, who collectively now hold 49.99 per cent.
Consolidated revenue jumped 39.43 per cent to Rs
593.97 crore, driven by fee income and higher credit business, Sheth said.
Sheth said the company's flagship NBFC arm did well as was visible from a 33 per cent spike in the loan book to Rs 9,000 crore from Rs 6,500 crore a year ago.

As the pressure on yields increased, its net interest margin declined to 7.5 per cent from Rs 8.1 per cent, he said, adding the yield came down from 15 per cent to 14.2 per cent during the quarter, while cost of fund has only come down by 30 bps to 9.2 per cent from 9.5 per cent.
Sheth said the company saw pressure on repayment during the quarter despite the note ban pains as it is only into fully secured loans. As a result, its gross NPA remained flat at 0.2 per cent while net NPA was zero, he added.

Commenting on the performance, JM Financial Group managing director Vishal Kampani said, despite the note ban, their fund-based business, primarily consisting of developer financing, was resilient. Falling interest rates and the passing of the Real Estate Regulatory Act will augur well for organised players to gain market share going forward.
Kampani said the company will be entering the home finance business and has made an application with the sectoral regulator NHB last week. He said the proposed business will have a focus on affordable housing.
Its investment banking arm, which was the largest deal maker in 2016, continues to grow with a robust deal pipeline and several mandated transactions under execution. During the quarter, the investment banking team executed many deals including being the sole financial advisor to Tata Power

Company for the Welspun Energy as well being an advisor to the Essar Group for the sale of Essar Oil to Rosneft etc, Kampani said.
On the ARC business, he sees a strong pipeline of opportunities in the space driven by the RBI's thrust on banks to significantly reduce their non-performing assets over the coming year, the company said in a statement.
He also said the company has applied to Sebi for a category II alternative investment fund (AIF) registration to launch a new private equity fund JM Financial India Fund II.
The board of directors have also declared an interim dividend of Re 0.65 per share for 2016-17.

JM Financial Group is into investment banking, institutional equity sales, trading, broking, wealth management, non-banking finance products and asset reconstruction.
Stock of JM Financial closed 1.97 per cent higher at Rs 72.50 on BSE, whose benchmark rose 82 points.